Endowments continue to allocate to hedge funds but the vehicles are being used for different purposes in portfolios, according to a new white paper from Infovest 21.
The paper, "Endowment Interest and Allocation to Hedge Funds/Funds of Funds," explores endowment chief investment officers' and consultants' views on the role of hedge funds in the portfolio, hedge fund performance, strategy preference, types of managers preferred, changes in endowment asset allocation, fees, risk and risk management and the outsourced chief investment officer trend.
Lois Peltz, president of Infovest21 and author of the report, said in a statement: "The percentage endowments allocate to hedge funds hasn't changed much but their role in the portfolio has matured since 2008. Hedge funds are being used in the endowment portfolio for different purposes."
Many endowments and consultants, she said, perceive hedge funds as risk reducers; moreover, the study also revealed that hedge funds are increasingly viewed as a vehicle rather than an asset class.
Infovest21's research also found that endowments' allocation to hedge funds has remained relatively stable. Many endowment CIOs are not currently looking to increase allocations due in large part to uncertainty over hedge fund performance and strong equity markets.
Consultants see a shift away from multi-strategy funds of funds; global macro and long/short equity are strategies cited most often; and there has also been recent interest in fixed-income substitutes given concerns about fears about rising interest rates.
More endowments are considering the outsourced chief investment officer model for some version of investment management, although not necessarily the entire operation. The OCIO model is a way for some endowments to solve a resource problem.